CENTRAL VIEW for Monday, December 15, 2008

by William Hamilton, Ph.D.

The Big 3 and the UAW: Is it Sayonara?

In the late 1970s, the Japanese looked at the American automobile industry and saw dollar signs. But first, the Japanese surveyed Americans asking what they wanted in the way of passenger cars. It took Detroit’s Big 3 (no, not Larry, Moe and Curly) a long time to catch on. After all, their employee parking lots were full of American cars.

Meanwhile, out on the West Coast, thousands of Americans were already navigating their crowded freeways and jammed streets in cars made-in-Japan. The reaction of the Big 3 was a public-relations campaign calling on Americans to: “Buy American.”

That’s when the Law of Unintended Consequences bit the Big 3 on their collective behinds. The Japanese opened up automobile manufacturing plants in Appalachia and the Deep South where they hired American workers at half the cost of Detroit labor to produce Japanese-designed cars that were (back then) twice as good. On top of that, the Japanese said we would be “Buying American.” Well, not exactly.

Unfortunately, the kind of vehicles that the Big 3 make best (and are profitable) are precisely the vehicles that the environmentalist do not want them to make. Government bailouts always come with government controls. Most likely, the Big 3 will be ordered to stop making the vehicles that demand makes profitable. Instead, the Big 3 will be told to make the cars preferred by the environmentalists. That, of course, will lead to more bailouts.

At Harvard’s JFK School of Government, our class was fascinated as Professor David Kuechle told us the way the Big 3 and the United Auto Workers (UAW) sometimes do their contract negotiations. (Professor Kuechle also worked for the Federal Mediation and Conciliation Service.)

First, the actual labor contracts are worked out in secret by UAW and management staffers. The staffers brief their bosses and get the contracts approved. Next, each side holds a press conference to announce that the negotiations are so hopelessly deadlocked that the two sides must hole up in a Detroit hotel suite and will not come out until a settlement is reached.

The public sees TV footage of auto executives with their shirt sleeves rolled up, and ties pulled down. Periodically, a cigar-chewing UAW type comes out into the corridor to complain to the media about those SOBs from management. These “bargaining” sessions, which are actually long, well-lubricated poker games, can last for days. Who says labor and management cannot get along?

Sometimes, the parties ask for a Federal Mediator, such as Professor Kuechle, to sit in. That adds drama to the charades which are designed to assure stock holders that management is doing its best to dampen labor costs and that the labor bosses are fighting for their members against some tight-fisted SOBs from management.

Apparently, the UAW is better at this charade than Big 3 management. By adding up all the labor and healthcare costs of current workers and the retirement and healthcare costs of retired workers, over $70 dollars-per-hour has to be factored into the labor costs of Big 3 vehicles.

By contrast, the labor costs (including benefits) for the folks building the Japanese, German and Korean cars down South are about $40 dollars-per-hour. Of course, these so-called transplant companies are yet to be burdened with the same legacy-retirement costs being carried by the Big 3.

Meanwhile, the UAW is refusing to restructure its wage and benefit demands to be more in line with the Law of Supply and Demand for car-making labor. That is what killed the bailout deal in the U.S. Senate. Two things need to happen: Bailout or no bailout, management needs to learn from the transplant companies and the UAW needs to get real. Otherwise, it may be Sayonara for the Big 3.

William Hamilton, a syndicated columnist and a featured commentator for USA Today, studied at Harvard’s JFK School of Government. Dr. Hamilton is a former assistant professor of political science and history at Nebraska Wesleyan University.